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FHA vs. Conventional? FHA Often Has Lower Rates

FHA Interest Rates are often lower than Conventional Interest Rates, and we often have borrowers ask us which type of financing is better.

FHA’s benefits over Conventional Financing:
(1) Lower Rates Sometimes;
(2) More Flexible Credit Standards;
(3) FAR Lower Down Payment Requirements – saves liquidity;
(4) FHA Loans are Assumable – a great feature if and when rates go up.

FHA’s Drawbacks:
(1) Up Front MIP of 1%, no matter what the LTV is; Conventional Financing has no “Up Front MI”;
(2) Monthly MI of 0.90% per year no matter what the LTV is*; Conventional Financing only requires MI if the LTV is above 80%;
(3) MI must stay in place for 5 years no matter how low the LTV is – PMI with Conventional Financing can be eliminated as soon as the LTV drops below 80% in most cases;
(4) Slightly tighter appraisal standards from a condition perspective, but FHA can be “As Is”.

Our rule of thumb: If a buyer has ample liquidity and can put down 15% of the purchase price or more, we always recommend Conventional Financing to avoid MI or to make it easier to get out of MI.

Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167